white paper

Rewiring Risk Management in Banks Amid the COVID-19 Pandemic

Risk management frameworks need to incorporate COVID-like scenarios

The Novel Coronavirus pandemic will uncover systematic weaknesses in the financial services ecosystem underscoring the need for effectively managing the risk functions in banks during the COVID-19 crisis. Ensuring efficient risk management in banks during COVID-19 will pose challenges as the crisis will sorely test the enhanced risk and capital adequacy frameworks adopted post the 2008 crisis. Though regulators have initiated measures to maintain liquidity, postponed stress tests, and allowed more time to borrowers for repayments, the banking system is set to undergo fundamental changes.

Given risk management becomes especially important during a crisis to retain customer trust and ensure financial stability, accurately assessing the COVID-19 impact on risk management in banks is key. Banks must define a strategy covering changes to risk management methodologies, processes, and systems while focusing on the following areas: